Bank accounts of local advertisers to be drained for Facebook and Google tax arrears

Facebook and Google have dozens of thousands of advertisers in Vietnam

Under the new tax law, banks are allowed to deduct taxes for cross-border service suppliers on their earnings from Vietnam following Clause 27 of the Law on Tax Administration. That means banks are allowed to take taxes out of the bank accounts of companies which have been making transactions with overseas services suppliers, especially Facebook and Google.

In addition to the local authorised partners, the two tech titans also have dozens of thousands of advertisers who are mainly small- and medium-sized enterprises and individual online vendors. However, only authorised partners have been paying foreign contractor withholding tax for Facebook and Google at the rate of 5 per cent. According to a VIR source, there are dozens of authorised partners of Facebook and Google in Vietnam.

The source also revealed that the giants sign about 10 contracts annually with authorised companies with the value of VND200-300 million ($8,700-13,000) each. Calculated with the 5 per cent foreign contractor withholding tax rate, these firms pay about $4,350-6,500 a year in total.

According to Nguyen The Trung, chairman of local tech company DTT Group, every transaction Facebook and Google make in Vietnam are valuable. With global earnings of $55 billion with more than 2.4 billion users, earning about $15-20 from each user. Thus, in Vietnam, with its more than 60 million users, Facebook earned about $1 billion last year.

“Local tax supervision has yet to be extended to these transactions,” Trung told VIR. “Facebook only pays about one-tenth of the value that authorised partners bring to it in Vietnam, ignoring its tax obligations after thousands of other advertisers.”

The biggest problem is how to supervise the money flows between local individual advertisers and overseas suppliers. Accordingly, as they perform transactions via personal credit cards, the people did not have to pay any tax for the suppliers until now, resulting in great amounts of lost tax revenue for the state for years.

With the fresh legislative changes, banks will soon be able to check individuals' bank accounts and deduct taxes from them.

According to market research company ANTS, Facebook and Google currently occupy about 70 per cent of the local advertising market and the proportion is forecast to keep growing in the years ahead. Therefore, to force giants to fulfil their tax duties in Vietnam, the new tax law is necessary.